In Uncategorized on 06/04/2013 at 16:42

But Judge Marvel Hangs Up

IRS tries to play telephone tag with Pamela Lynn Brooks in 2013 T. C. Memo. 141, filed 6/4/13.

Pammy is an IRS tax compliance officer, a reviewer of returns who messed up her own returns for the years at issue.

Her case is also interesting for the capital loss argument, which I’ll briefly summarize before getting to the telephone story. Pammy made some improvements at her own expense to mother-in-law Beulah’s residence, based on m-i-l Beulah’s promise to give her a cut of the profits when she sold. Though Pammy lived in the place for a short while, she vacated prior to sale. M-i-l Beulah died, the property was sold, and of course Pammy got nothing until Pammy sued, and settled for about half what she had spent to make the improvements.

That’s enough for Judge Marvel to allow the loss, even though Pammy had no ownership interest in, and no other enforceable legal right to, the house. Judge Marvel says “joint venture” and that can be an oral agreement under State law (CA, where else?). Investment was made with expectation of profit, had economic substance and an enforceable agreement.

Could also be constructive trust: family relationship, action taken in reliance.

Now for the telephone. You remember the Section 4251 telephone excise tax was trimmed by the courts and IRS offered refunds per Notice 2006-50, ultimately tacking a line onto the 2006 Form 1040 to let taxpayers take the telephone excise tax as if it were income tax paid. Well, Pammy claimed $768 in credit, and IRS said no.

Judge Marvel passes: “Although neither party contends that we lack jurisdiction to decide whether petitioner claimed an excessive telephone excise tax credit, we may question our jurisdiction sua sponte. The Tax Court is a court of limited jurisdiction, and we may exercise our jurisdiction only to the extent authorized by Congress. Section 6213(a) of subchapter B authorizes the Tax Court to redetermine a deficiency provided a timely petition is filed. Section 6211 defines a deficiency as the amount by which the tax imposed by subtitle A or B or chapter 41, 42, 43, or 44 of the Code exceeds the amount of such tax shown on the taxpayer’s return and the amount of such tax previously assessed.

“Section 4251 imposes the telephone excise tax and section 6415 allows a taxpayer to claim a telephone excise tax credit. See also Notice 2006-50, supra. Thus the excise tax and credit are not properly part of an income tax deficiency determination. See sec. 6211(a). Accordingly, we do not have jurisdiction to determine the proper amount of petitioner’s telephone excise tax credit.” 2013 T. . Memo. 143, at pp. 37-38. (Citations and footnote omitted).

This is a non-rebate refund, and therefore Tax Court can’t touch it. IRS is trying to use income tax methods for non-income tax issues, and Judge Marvel hangs up on that.

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